RESTRICTED  WORLD TRADE  
ORGANIZATION  TN/RL/M/34 
9 February 2006 
 (06-0561) 
Negotiating Group on Rules  
  
 
 
SUMMARY REPORT OF THE MEETING 
HELD ON 30 JANUARY 2006 
 
Note by the Secretariat
 
 
 
1. The Negotiating Group on Rules ("the Group") held a formal meeting on 30 January 2006. 
A. ADOPTION OF THE AGENDA  
2. The Group adopted the following agenda, as contained in WTO/AIR/2737: 
A. ADOPTION OF THE AGENDA ..............................................................................................1  
B. REGIONAL TRADE AGREEMENTS ......................................................................................1  
C. OTHER BUSINESS ..............................................................................................................4  
 
B. REGIONAL TRADE AGREEMENTS  
3. The Chairman called the Group's attention to the submission by Japan, TN/RL/W/190, which 
had only been preliminarily considered at the mee ting of 1 November 2005.  He invited Participants 
to supplement their comments on that submission. 
4. The proponent of TN/RL/W/190 welcomed the opportunity to give a more focused 
explanation on some of the issues raised.  The ma in objective of the submission was to show that a 
trade-based test was preferable to  a tariff-line based test as a benchmark for coverage, in terms of its 
effect on trade promotion.  A trade-based test would encourage the parties to a regional trade 
agreement (RTA) to eliminate duties more in products with large trade than in non-traded products so 
as to meet the coverage benchmark.  Freeing du ties on products with a large trade volume would 
reduce import prices and result in increased trade, while for non-traded products the effect upon trade 
promotion would be uncertain because market cond itions (such as lack of supply or demand) would 
not change by merely eliminating duties.  The pro ponent also stated that several other Participants 
shared the view that a trade-based test would be  the best approach for determining a quantitative 
benchmark of coverage.  As  to the concrete method for calculating the trade-based coverage figure, he 
expressed the view that it should take into account  import and export flows together, to accurately 
reflect the correlation between the parties' con cessions in the overall balance of the RTA package. 
5. The proponent then reviewed the concerns raised  by Participants on some of the suggested 
approaches to address the shortcomings of a trade-based test.  Firstly, on the doubts expressed with 
respect to a periodic review of coverage to monito r subsequent changes in trade flows, he affirmed 
that it would help to the fair evaluation of RTAs to take into account the actual state of trade or 
changes in trade patterns even wh en using a tariff-line based test.  Secondly, on the proposed ratio 
between the number of products on which duty was el iminated in the RTA concessions and the total 
number of non-traded products, he clarified that the general aim was to put more weight on the TN/RL/M/34 
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  products with a large trade volume than on products  with no trade volume.  The suggested measure 
would make allowance for the fact  that a trade-based test, while making it superfluous to evaluate 
duty elimination in non-traded products, would not  reflect any duty elimination which might have 
taken place in those products.  This supplementary measure could thus respond to the argument that a 
trade-based test gave no incentive to eliminate duties in non-traded products. 
6. Participants thanked the proponent for his submi ssion and efforts to spell out the advantages 
and drawbacks of both the trade-based and the tari ff-line tests.  They recognized the proponent's 
contribution to the debate on the meaning of  the "substantially all the trade" concept. 
7. Some Participants supported the proponent's vi ew that the trade-based test should be the 
primary methodology for the coverage benchmark,  although some highlighted the convenience of 
having a tariff-line test as an additional measure; the issue of taking into account the other restrictive 
regulations of commerce was also raised in that c ontext.  One Participant said that the submission 
brought out the importance of the trade-based test, as well as the downsides of the tariff-line test.  He 
stressed that the latter might be an important and valid way of looking at coverage, but still raised 
problems which would in his view not be taken care of by combining the two tests.  He stressed that 
the trade-based test was crucial and should not be overlooked. 
8. Some Participants stressed that it was too early to discard or favour any type of test and that 
further consideration of both the trade-based a nd the tariff-line tests were necessary.  Other 
Participants stated that they could not consider the tariff-line test as a mere "additional" test.  In their 
view, while actual trade was better covered in a tr ade-based test, potential trade was better covered in 
a tariff-line test.  One Participant said that coverage was to be seen as a matter of factual 
circumstances in each case.  It seemed clear that, fo r example, in the case of a market on which there 
had been restrictions for a very long time, it would no t be appropriate to simply  look at trade coverage 
because these restrictions would not be take n into account.  She did not favour weighing any 
particular test, rather supported both the trade based and tariff-line tests recognizing that each had 
strengths and weaknesses.  In her view, the aim was not to look for a single, best possible benchmark, 
as described by the proponent, but to expand the ways to look at trade coverage (not to limit them). 
9. Several Participants referred to the suggested  periodic review mechanism (Part IV.1 of the 
submission), as a supplementary measure, stating their preference for a single determination of 
compliance, right from the start, with the "substa ntially all the trade" condition rather than a 
continuing and probabl y indefinite examination.  It was observed that a periodic review to assess 
fluctuations in trade coverage would be overly complex, and a burdensome process, adding to the 
already heavy workload of the WTO body in charge of examining notif ied RTAs.  Concerns were also 
expressed about the consequences of such a revi ew of changing trade patterns:  Would it be 
reasonable to envisage that the parties could be compelled to renegotiate an RTA that had been 
negotiated in the past? 
10. On Part IV.3, one Participant expressed doubts that the calculation of the proposed ratio 
would assist in assuring future trade creation; he c onsidered more appropriate another proposal on the 
table which addressed the issue more directly, through  a potentially-traded products test.  With respect 
to the noted shortcomings of the tariff-line coverage , it was recalled that a product could not be traded 
either because of high tariffs or because of an act ual lack of market/supply; the latter case should be 
taken care of through a fine-tuning of the tariff-line te st, rather than by abandoning it.  One participant 
asked how would the proposal consider the exclusi on of highly traded value products, recalling that 
this concept did not refer to a measurement of produc ts without trade, but to products without bilateral 
trade which were important in  the parties' total exports. 
11. On Part V.1 of the submission, referring to ta riff elimination with a longer transition period, 
one Participant disagreed that the tariffs eliminat ed after the transition period should be taken into  TN/RL/M/34 
 Page 3 
 
 
  account; at the end of the day, this would en courage RTA backloading and undermine trade 
liberalization.  Another Participant said that the assessment of tariff elimination was to be done in 
terms of a maximum ten-year transitional period.  With respect to the paragraph on tariff-rate quotas 
(TRQs) in Part V.2, one Participant said that TR Qs had trade restrictive effects and should not be 
treated any differently from tariffs; the "substa ntially all the trade" test should involve full 
liberalization.  That same Participant went on comme nting on Part V.3 of the submission, stating that 
the proposal to distinguish trade expansion based on pre-RTA tariff rules seemed overly complex.  On 
Part V.5, he asked the proponent to clarify whet her the aim was to eliminate safeguards and anti-
dumping measures from the calculation of coverage. 
12. One Participant stressed the importance that the Group take into account RTAs' 
developmental aspects and consider introducing speci al treatment for developing countries in the 
context of the disciplines currently  discussed, for example making allowance for the effects of an 
RTA on international trade on the basis of the parties' share in that trade.  Some Participants expressed 
acknowledgement of the issue raised. 
13. The proponent of TN/RL/W/190 thanked delegatio ns for their comments and went on giving 
further explanations on the different aspects of the proposal.  First, he expressed openness as to 
flexibilities which could be considered for developing  countries.  Second, he emphasized that even if 
some combination of the tariff-line and trade based tests was considered, it was important to make a 
more detailed analysis about the benefits and shortcom ings of each test.  Third, noting that Australia's 
proposal on highly traded products aimed at tackli ng the question of actual trade flows, as did the 
suggested periodic reviewing for subsequent trade ch anges, he said that the problem remained on how 
to do it; also, though he agreed that a periodic revi ew might be a burdensome procedure, he wondered 
whether a snapshot approach would be meaningful in  ensuring the continuous consistency of an RTA.  
Forth, he reiterated that the proposed measure a bout the liberalization in non-traded products was 
nothing more than a "supplementary" measure, the prio rity lying not in those products but in products 
with a large trade volume; he added that the ta riff-line test, though probably touching upon non-traded 
products, might not allow an appropriate analysis of  how much trade liberalization was made in those 
products, given that the parties could freely select th e items for duty elimination.  Still on that same 
question, he agreed that the crux of the matter was to distinguish, among non-traded products, those 
with good trade potential through tariff eliminati on from the rest, and expressed the view that the 
proposed ratio served that purpose; on the comparison of RTA concessions with parties' total exports, suggested during the discussion, though he understood the point made that a link might exist between 
RTA liberalization and multilateral liberalization, he wondered whether these should not be separated 
in the context of the present negotiations. 
14. The fifth aspect commented by the proponent of TN/RL/W/190 concerned the assessment of 
duty elimination during a transition period longer than ten years.  In this respect,  he stressed that this 
had been included in the submission as a qualitative be nchmark and that the aim was not to defend the 
value of longer transition periods, but to signal that  trade liberalization effects might be meaningful 
even if duty elimination was implemented over a longe r transition period.  Sixth, while agreeing that 
TRQs could restrict trade, depending on the way they were operated, he noted that a TRQ system 
could also have the same effect as tariff elimina tion (for example, when in-quota rate were zero and 
in-quota amounts were sufficiently large); so, ther e was a need for a subsequent detailed monitoring 
of TRQs.  Finally, replying to a question on safegua rd and anti-dumping issues, he clarified that the 
idea spelled out in the proposal was that a proper use of these measures in the RTA should be ensured. 
15. The Chairman thanked the proponent for the s ubmission of his paper and explanations, and 
Participants for presenting comments to it. TN/RL/M/34 
Page 4  
 
  C. O
THER BUSINESS  
16. The Chairman informed the Group that the next formal meeting devoted to RTAs would take 
place on 23 February 2006. 
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